Colorado billionaire Philip Anschutz on Thursday lost a case in U.S. Tax Court, which ruled that he does owe tax on complicated transactions in 2000 and 2001 that helped fund his Los Angeles sports operations.

In order to raise cash for new business ventures in the late ’90s and early 2000s — including ownership of the Staples Center in Los Angeles, the Los Angeles Kings hockey team and Los Angeles Galaxy soccer team — Anschutz executed a series of transactions in 2000 and 2001 involving millions of shares of Union Pacific Resources Group Inc. and Anadarko Petroleum Corp., according to court documents.

Instead of selling the shares, he used a combination of “prepaid variable forward contracts” (PVFCs) and share-lending agreements. The method was commonly used at the time, company officials said.

Basically, Anschutz agreed to transfer the shares at a future date to investment bank Donaldson, Lufkin & Jenrette (DLJ) — which was acquired by Credit Suisse First Boston Inc. in late 2000 — in return for an upfront cash payment equal to 75 percent of the fair market value of the shares. If the shares gained in value, Denver-based Anschutz Corp. was entitled to the first 50 percent of the appreciation; all the rest went to DLJ.

To fund the prepayment and hedge its own risk, DLJ borrowed the same shares from Anschutz Corp. and sold them on the open market as part of a “short sale,” in which a seller promises to buy the shares back at a certain point. If the shares lost value, DLJ could buy the shares back at a lower price.

The tax court ruling (download here) said that the arrangement did not meet tax code rules for PVFCs because the linked transactions eliminated the Anschutz Corp.’s risk. In the court’s view, the deal was a sale, and Anschutz must pay tax on it.

“Upon the advice of tax experts and legal counsel, the company determined that capital-gains taxes should be paid when the agreements mature and the transactions are settled,” according to a statement issued Thursday by Anschutz Corp. “The Anschutz Co. and others have disagreed with the Internal Revenue Service about this point for a number of years. Today the U.S. Tax Court ruled in favor of the IRS.”